E.ON oil, gas, and power division increases profits to ?208m

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20 August 2014, Gas, Electricity, Nuclear, Solar, Wind

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Higher oil prices and lower wholesale gas prices were the main reasons behind this increase. However, for E.ON as a whole the picture was less positive. In the first half of 2014 E.ON's German parent company recorded net income of EUR1.5bn, compared to EUR1.9bn in H1 2013. A large portion of this decline was attributable to E.ON changing its energy generation mix, adverse exchange rate movements, and rising wind and solar generation in Germany depressing power prices.

In the UK, where E.ON serves approximately 4.8 million households and 500,000 businesses, the group did not fare as well as projected. Profits from the retail electricity and gas division combined fell 8% to ?396m, as a milder than average winter saw households lowering their thermostats or even turning off their central heating systems.

Even with lower profits, members of parliament and consumer watchdogs have been quick to accuse E.ON and its peers of a lack of transparency, with a particular focus on an alleged reluctance to pass wholesale price declines on to retail customers. Sophisticated arguments about the time lag between buying wholesale supplies at high prices - only to find that by the time peak demand arises for this expensive energy wholesale prices have subsequently fallen - are not easily sold to a skeptical UK public. E.ON increased its headline dual fuel bill by 8.7% at the end of 2013, roughly in line with many of its competitors.

E.ON has refocused its UK energy generation portfolio predominantly on gas by decommissioning four coal-fired generation plants (4,180MW) in the last two years. E.ON now has 14 gas-fired plants, and another one under construction that will come online by 2018. Datamonitor Energy estimates that E.ON UK's energy asset capacity breaks down as follows: 53% gas, 21% coal, 13% wind, 12% bioenergy, and 1% oil. It owns only one active coal-fired plant, located at Ratcliffe-on-Soar in Nottinghamshire (1,980MW).

As well as conventional power generation, E.ON co-owns the world's largest wind farm along with DONG Energy, Masdar, and CDPQ. The London Array, based just off the Kent and Essex coasts, came online in July 2013 with 630MW of capacity and is predicted to supply energy to nearly 750,000 households. Elsewhere, E.ON is bringing three wind projects online - Amrumbank West (288MW), North Sea, Germany; Humber Gateway (219MW), UK; and Grandview 1 (219MW), Texas, US - in the next two years. However, given the current low cost of coal power production and the significant political pressure surrounding gas prices, E.ON may struggle to maintain profitability.

www.datamonitorenergy.com / asken@datamonitor.com / @DatamonitorEN

Source: MarketLine

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